As per the Microsoft documentation, Event Grid does not implement retry on specific errors like 400, 413, 401. In such cases Event Grid will either perform dead-lettering on the event or drop the event if dead-letter isn't configured.
So I enabled dead letter on my webhook (receiver endpoint) and produced a 400 error. But it is still not captured in dead letter logs container. Is there something I am missing?
Please have a look at the Event Grid message delivery and retry - Dead-letter events documentation and see if your configuration is correct.
By default, Event Grid doesn't turn on dead-lettering. To enable it, you must specify a storage account to hold undelivered events when creating the event subscription. You pull events from this storage account to resolve deliveries.
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Before setting the dead-letter location, you must have a storage account with a container. You provide the endpoint for this container when creating the event subscription. The endpoint is in the format of:
/subscriptions/<subscription-id>/resourceGroups/<resource-group-name>/providers/Microsoft.Storage/storageAccounts/<storage-name>/blobServices/default/containers/<container-name>
Also, take into account that
There's a five-minute delay between the last attempt to deliver an event and when it's delivered to the dead-letter location. This delay is intended to reduce the number of Blob storage operations. If the dead-letter location is unavailable for four hours, the event is dropped.